(Adds U.S. comments, paragraphs 13-15) By Adam Entous JERUSALEM, March 7 (Reuters) - A World Bank report released on Wednesday questioned the oversight of hundreds of millions of dollars in funds sent to Palestinian President Mahmoud Abbas's office since Hamas came to power last year. The bank urged donor nations, if possible, to resume aid via a central account controlled by the Palestinian finance ministry, rather than through the office of the president. Since a Western aid embargo was imposed on the Hamas-led Palestinian government last March, Abbas's office has received at least $265 million in funds, mostly from Arab League states including Saudi Arabia, Qatar and Kuwait. Israel recently transferred $100 million in Palestinian tax revenues to the president's bureau. The World Bank report, dated February, said it was "unclear" to what extent payments being made through Abbas's office were following the Palestinian government's established financial controls and internal audit procedures. "Anecdotal evidence has raised concerns of a significant reduction in transparency and accountability because of erroneous reporting and a failure to submit financial reports regularly," the report said. Israel has asked Abbas's office to provide a list of expenditures for the $100 million it transferred, Western diplomats said. Abbas's office, the diplomats said, has so far balked at releasing outside audits of its spending. In its report, the World Bank said "when circumstances allow" donor nations should close all accounts with the office of the president and resume transfers directly through the Palestinian Authority. Hamas Islamists won parliamentary elections in January 2006 on a platform of rooting out corruption in a Palestinian Authority long dominated by Abbas's Fatah faction. Abbas agreed last month to form a unity government with Hamas, stemming fierce factional fighting. It remains to be seen whether the deal will ease the nearly year-old Western aid embargo that has increased Palestinian poverty. State Department spokesman Tom Casey said he had not seen the World Bank report but did not know of any U.S. concerns about financial controls in Abbas's office. "I am unaware of any specific concerns about problems with accounting through President Abbas's office," he told reporters in Washington, stressing the U.S. desire to ensure that any monies were used properly. Casey also said he did not expect a change in the policy of the Quartet of Middle East mediators of refusing to give money directly to the Hamas-led goverment until it recognizes Israel, renounces violence and accepts interim peace agreements. Salam Fayyad, a former World Bank official, has agreed to serve as finance minister in a unity government. He won Western praise for reforming Palestinian finances and creating a central treasury account when he was finance minister from 2002 to 2005. The World Bank said the account had provided "strong central management and transparency for PA finances." The central account, which is no longer operational, should be re-established "and the practice of routing aid flows through the office of the president shut down," the bank's report said. In addition, the World Bank urged Israel to release withheld tax revenues and to lift restrictions on the movement of people and goods to the Gaza Strip and occupied West Bank. (Additional reporting by Arshad Mohammed in Washington)
